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2/3/2016 | 3 MINUTE READ

Plastics Recycling Conference Explores Recycling Economics

Originally titled 'Plastics Recycling Conference Explores the Economics of Recycling '
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These are interesting times for the recycling market—the industry has been impacted by the erratic commodities markets and low cost virgin material will test commitments to use recycled materials.

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These are interesting times for the recycling market—the industry has been impacted by the erratic commodities markets and low cost virgin material will test commitments to use recycled materials.

 

This topic was brought up quite a bit during the first day of Resource Recycling's Plastics Recycling Conference (Feb. 1-3; Hyatt Regency Center, New Orleans), which featured representatives from the entire plastics recycling supply chain.

 

PP AND PE, A TALE OF TWO CITIES

“It was the best of times, it was the worst of times (for polyolefin buyers),” said Phillip Karig, managing director with Mathelin Bay Associates, St. Louis. The shale revolution has left PP producers feedstock constrained as resin prices are high and volatile whereas PE producers are fully integrated to natural gas, making them big winners in the ‘Shale Revolution.’

 

“Be careful about getting caught when the market falls down, everyone tries to buy scrap inventory but don’t assume tomorrow will be like today,” he said. Lots of scrap inventory with sharp virgin price drops can break a recycler.

 

“There is a lot of pressure on the spread right now with customers coming in and asking for fixed prices,” Karig said. He cautioned attendees to “hedge carefully” and recognize that resin prices are less correlated with energy costs than they used to be so “don’t hedge with them.”

 

Karig also mentioned the potential liability from customers who expect recycled resin to “not only ‘run like virgin’ but to be virgin.’”

 

“The biggest thing to watch out for is everyone wants to run recycled material like virgin material but it’s not virgin,” he said.

 

PP LOVE

One material that could be a highlight for the recycling industry: polypropylene. A panel dug down deep into the supply chain to discuss PP and how the resin can grow. KW Plastics, Troy, Ala., is one of the world's largest reprocessors of the material. Stephanie Baker, KW’s director of market development (pictured below), highlighted work the company has down with Lush Cosmetics to apply recycled post-consumer (PCR) PP packaging. 

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“Who would have thought 10 years ago that we’d not only see PP PCR in packaging but that a brand owner would actually want to tell customer, ‘We are proud not to be virgin,’” Baker said. “There are some really high-grade products developing as a result of our work with PP PCR.”

 

She went on to say that “PP is what is stabilizing us, as we are not seeing the big swings; PP is a stable commodity and a pretty safe bet.”

 

TOUGH TIME FOR SCRAP

Joe Pickard, chief economist and director of commodities at the Institute of Scrap Recycling Industries (ISRI, Washington, DC), didn’t shy away from the fact that the industry faces a number of challenges.

 

“ISRI members say 2015 was the worst year they have seen in a decade,” he said.

 

For the first 11 months of 2015, plastic scrap exports—totaling 1.9 million metric tons—were down 5% by volume as compared to year-prior shipments. Among the major overseas markets, the 20% drop in plastic scrap exports to mainland China and 42% decrease in loadings for Indonesia more than outstripped gains to Hong Kong, Canada, India, Taiwan, Vietnam and others.

 

Generally speaking, Pickard said the issues are: falling commodity prices plus soft manufacturing output, a strong dollar, and logistical and regulatory issues equaling disappearing margins and scrap industry consolidation. The Chinese manufacturing slow down is impacting commodity and scrap demand and having a big impact on U.S. scrap exports.

 

“While there are positive macroeconomic numbers—GDP growth and the labor market adding jobs—for the manufacturing sector, it’s different story; job gains have reduced,” he said.

 

Will it be more of the same in 2016? China is still expected to slow down, and commodities are widely forecast to go lower for longer, however, Goldman Sachs and the International Monetary Fund are forecasting gains in global economic growth and trade. While few are expecting a “V-shaped” recovery, Pickard said there are signs some commodities may hit bottom as falling prices impact supply. Overseas markets are expected to experience faster growth especially in South Asia. He said the industry needs to focus on operational efficiency, quality and product diversification with also a targeted investment in technology.

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